Net neutrality, and the cost of ‘free data’ for consumers

Free data on mobile plans could weaken the Internet as a neutral platform

US Federal Court ruling this week paves the way for further discrimination by ISPs

Digital Consumers by Dr Jeremy Malcolm

CONSUMERS love free things. I've found this to be especially true since I began living in Malaysia. Last year when a new cinema opened nearby and offered free tickets, customers queued for hours, all through the mall and into the car park!

Earlier this month, US phone and Internet giant AT&T announced its new Sponsored Data service, which would allow mobile customers to access certain sponsored websites or services, free of data charges – because the charges would be borne by the sponsor companies instead.

This is not the first time such a business model has been tried. Facebook, Google and even the non-profit Wikipedia have arrangements with mobile providers in certain developing countries to provide free access to their websites (or in telco speak, to ‘zero rate’ that traffic).

So all this free mobile Internet data is presumably a good thing for consumers ... or is it?

When free is expensive

Free isn't always the best deal. It is always important to consider, if you're not paying, who is – and why.

Sometimes, you are paying for free products not with money, but with attention. For users of free social media websites, this has become encapsulated in the aphorism “if you're not paying for the product, you are the product.”

In such cases, it’s important to be aware of what you’re giving up in exchange.

In other cases, the vendor prices a product below cost in order to damage third parties. These may be competitors (as in the case of agricultural dumping), but they may also be workers, or the environment.

This is why we pay cheap prices for goods produced in countries with low labour and environmental standards, whose workers and citizens effectively subsidise the full cost of the goods we consume. Economists refer to these as “external costs” or “negative externalities.”

For these reasons, the consumer movement has never been about low cost at any cost. In particular, competition and consumer laws protect consumers against low-pricing practices that can damage consumers or markets, such as predatory pricing (when this substantially damages competition in a market), and bait pricing (where an unrealistically low price is used to entice consumers to buy, but they are then induced to pay more).

Taking an even larger view, one of the eight consumer rights that the consumer movement maintains is the right to a healthy and sustainable environment. This implies a concomitant duty on consumers to aim towards sustainable consumption – avoiding consumption patterns that impose long-term costs on the environment and our society at large.

The costs of free Internet data

How does this relate back to the free mobile Internet data that AT&T has announced in America, and that a number of high-profile social networking and messaging companies are already offering in this region?

The problem is that giving consumers access to selected content or applications for free, whilst charging for everything else, upsets the otherwise relatively level playing field that makes the Internet a platform for competition and innovation by a range of content providers – from small to large, voluntary to profitable, from anywhere in the world.

It makes it very much more likely that only the largest and most profitable content providers (it is any coincidence that Google and Facebook are already doing this?) will gain, and retain, the majority of traffic from mobile consumers, leaving behind smaller competitors and startups which can’t afford to pay mobile providers to provide free access to their sites or apps.

How bad this problem is depends on the basis upon which the applications or services are zero-rated. If this is being done by the mobile provider as a ‘loss leader’ in order to differentiate their service from the services of other mobile providers, and there is no payment being made to the mobile provider by the content or application provider, then the problem is relatively smaller.

This is particularly so where, as in Malaysia, different mobile providers are offering different free applications or services, so there is still a measure of competition between them, albeit mediated by the mobile provider.

Slightly different is the case where the mobile provider requires the content or application provider to colocate their equipment at the mobile provider’s data centre, or at a common peering point, in order to provide zero-rated traffic to subscribers.

This raises another impediment to competing content or application providers, however in cases where colocation is possible at no or nominal cost, the barrier is not so high as to be anti-competitive, and may result in a net benefit to consumers in countries where data charges would otherwise be prohibitive for many.

But neither of these cases are what AT&T is offering with its Sponsored Data service. In this case, AT&T charges the content provider the full cost of delivering its data to the consumer, which not only provides an advantage to the largest and richest content providers, but also turns the mobile provider into a powerful intermediary, who can decide what content and apps it wants you to use.

Is this what we want the mobile Internet to become?

In Asia in some ways the problem is even worse, because we simply don’t know the commercial arrangements that lead some mobile companies to offer free or subsidised services to particular sites or services, and not to others. There is simply no transparency around these deals.

If we at least knew who was paying whom, and how much, we could more easily determine the scale of the advantage that these deals are bestowing upon powerful incumbent players.

Just as a polluting company offers cheap products by offloading the external costs of its pollution, so too mobile providers which offer free Internet content only from selected companies could be doing long-term damage to the online ecosystem.

Consumers are better off when they can choose for themselves what websites they want to visit and what apps they want to use, rather than having these decisions made in backroom deals between content and network providers.

This principle has been further threatened last week with the release of a US Federal Court ruling striking down rules that the Federal Communications Commission (FCC) had formerly imposed to prevent all ISPs (Internet service providers) discriminating in favour of or against particular Internet content or services.

These rules were already looser for mobile providers, which was why AT&T was able to introduce Sponsored Data. Now that even fixed line Internet providers in the United States have escaped the FCC's rules, we can only expect further degradation of the Internet as an open, neutral and competitive content platform.

Dr Jeremy Malcolm is an Internet and Open Source lawyer, consumer advocate and geek. He is also a senior policy officer at Consumers International and can be found on Twitter and LinkedIn.